Latest / The Property Entrepreneurs Podcast with Alasdair Cunningham / Never Ask for Money: How to Approach a Joint Venture Partner

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Never Ask for Money: How to Approach a Joint Venture Partner · The Property Entrepreneurs Podcast with Alasdair Cunningham

• 0:04
  SPEAKER_00: Welcome to the 45 broad podcast.
• 0:07
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• 0:34
  SPEAKER_01: Hey, good morning.
• 0:35
  SPEAKER_01: This is Alistair Cunningham.
• 0:36
  SPEAKER_01: This is Property Entrepreneurs Podcast.
• 0:38
  SPEAKER_01: Today's show I'm going to be talking about joint ventures and how to approach how to approach a potential partner when it comes to looking for joint ventures.
• 0:47
  SPEAKER_01: Now, this is something that a lot of my clients are nervous about, and I'm sure you are too.
• 0:55
  SPEAKER_01: Because when it comes to joint ventures, I want you to understand that a joint venture is essentially a blank sheet of paper.
• 1:03
  SPEAKER_01: It's a blank canvas.
• 1:04
  SPEAKER_01: You can do whatever you want to do, providing it's legal, of course, and ethical.
• 1:10
  SPEAKER_01: Like a joint venture, ask yourself, what should it be?
• 1:13
  SPEAKER_01: Now, to me, a joint venture is always about creating a solution where everybody wins.
• 1:18
  SPEAKER_01: And, you know, you don't want to enter into a joint venture where the partner is hard done by or doesn't get the fair share of equity or or whatever it is the outcome should be.
• 1:29
  SPEAKER_01: And one of the things that I see often is people are too stingy when it comes to joint ventures.
• 1:38
  SPEAKER_01: And ask yourself this question: Would you rather have people want to joint venture with you and want to basically throw money at you and do business for you on a repeat basis?
• 1:49
  SPEAKER_01: Or would you rather an investor do business with you once and leave with a bit of a sour taste in their mouth and never want to do business with you again?
• 1:56
  SPEAKER_01: Now, of course, it it was the former.
• 1:58
  SPEAKER_01: It was the the you want repeat business, right?
• 2:01
  SPEAKER_01: Now, every joint venture I've ever entered in, enter entered into, the the partners always wanted to do business again.
• 2:09
  SPEAKER_01: And it's because I create win-win situations.
• 2:12
  SPEAKER_01: I create solutions where they, you know, they're favorable as well as uh I am.
• 2:17
  SPEAKER_01: Okay.
• 2:17
  SPEAKER_01: So I'll give you a couple of examples.
• 2:20
  SPEAKER_01: I had a joint venture many years ago where I partnered with um, I'm gonna call him a friend uh now.
• 2:29
  SPEAKER_01: He he started off as a client, but I'm gonna call him a friend.
• 2:32
  SPEAKER_01: And we had a property opportunity come up.
• 2:35
  SPEAKER_01: Uh we needed to raise we didn't need to, but we wanted to raise um an amount of money.
• 2:41
  SPEAKER_01: I think the amount was£65,000, something or that there or thereabouts.
• 2:46
  SPEAKER_01: Um and this was 2018 time, so£65,000.
• 2:53
  SPEAKER_01: Um now I trained this gentleman in property and he didn't really want to invest himself, he was more looking for somebody to hold his hand and do it with him.
• 3:03
  SPEAKER_01: So I just presented the opportunity where I said, Look, I've got this opportunity.
• 3:07
  SPEAKER_01: Uh do you know anybody that might be interested in partnering with me on it?
• 3:10
  SPEAKER_01: And he obviously said, Well, he would.
• 3:12
  SPEAKER_01: So we ended up entering into an agreement where this gentleman loaned£65,000 and the interest rate that they were um making for for their share of it at the time was 15%.
• 3:27
  SPEAKER_01: And I was fine, like you might think 15%, wow, that's insane.
• 3:31
  SPEAKER_01: Like Alistair, why don't you just go and get bridging finance or whatever?
• 3:34
  SPEAKER_01: Well, well, think about it, right?
• 3:36
  SPEAKER_01: What's the difference between bridging finance and a joint venture partner?
• 3:39
  SPEAKER_01: Well, bridging finance, you have to jump through 101 different legal loopholes.
• 3:43
  SPEAKER_01: Like you've got to, you know, credit check, you've got to have solicitors draft up contracts both sides, you've got high fees, you've got much higher interest.
• 3:53
  SPEAKER_01: And actually, overall, most bridging finance is probably 15 to 20%.
• 3:58
  SPEAKER_01: Even though it might only be 0.98% per month, take over the year, what's that?
• 4:04
  SPEAKER_01: That's 12%.
• 4:06
  SPEAKER_01: And then factor in the setup costs, oh, there's another£3,000, then factor in you've got to pay their solicitors' fees, oh, there's another£2,000, then£2,000 for my solicitors' fees.
• 4:15
  SPEAKER_01: And before you know it, you're probably paying actually way more than£15 or even 20% interest to the bridger for the facility of that loan.
• 4:21
  SPEAKER_01: So it's much better to get a joint venture partner and just pay them a much more reasonable interest.
• 4:27
  SPEAKER_01: Like, you know, I see these Facebook posts all the time.
• 4:30
  SPEAKER_01: People saying, hi, I'm looking to borrow 100 grand and uh we can offer you 8%.
• 4:35
  SPEAKER_01: Like, you know, you're not getting an investor excited over 8%.
• 4:39
  SPEAKER_01: Like you're really not.
• 4:41
  SPEAKER_01: Um so think about what's a fair solution for you and your investor.
• 4:48
  SPEAKER_01: And remember, it all boils back to the deal.
• 4:51
  SPEAKER_01: Is there enough profit in the deal where you can afford to pay somebody 15 or 20% or even 25%?
• 4:56
  SPEAKER_01: I've I know a client of mine who done a joint venture where he gave the investor 28% interest.
• 5:04
  SPEAKER_01: Now, at that rate, you're gonna have investors all over you, but then you've got to make sure the deal actually stacks up, right?
• 5:11
  SPEAKER_01: You've got to make sure the deal actually stacks up, okay?
• 5:13
  SPEAKER_01: So you can afford that interest.
• 5:14
  SPEAKER_01: Now, I'm not sitting here saying just make up some numbers here.
• 5:18
  SPEAKER_01: The due diligence has to tell you what you can pay them and also factor in things like contingencies and what happens if something goes wrong, okay?
• 5:27
  SPEAKER_01: Now, when it comes to approaching investors, never ask for money.
• 5:32
  SPEAKER_01: Never.
• 5:33
  SPEAKER_01: Never ask for money.
• 5:34
  SPEAKER_01: And the the key, in my opinion, to getting investors on board is to learn how to present opportunity.
• 5:42
  SPEAKER_01: And if you can learn how to present opportunity without asking for money, you're going to get a lot more opportunity to work with investors.
• 5:52
  SPEAKER_01: And I'll give you a prime example.
• 5:54
  SPEAKER_01: Let's say you've got a deal right now where you need£50,000 for the argument's sake account.
• 6:00
  SPEAKER_01: So you need to raise£50,000 and you've done your due diligence and you know that, you know, if you make that, if you can get that£50,000, you're gonna buy a property, let's say, for£150,000, you're gonna refurb it, and it's gonna sell for, let's say, mythical numbers,£300,000.
• 6:18
  SPEAKER_01: Right.
• 6:18
  SPEAKER_01: So you've borrowed£50,000 to buy it, you've spent probably£50,000 on refurb, and it's worth, you know,£300,000.
• 6:25
  SPEAKER_01: So, you know, your total money in, if you're buying it on mortgage or whatever, is gonna be like around£200,000,£210,000.
• 6:32
  SPEAKER_01: Okay, there or thereabouts.
• 6:34
  SPEAKER_01: These are not exact numbers, by the way, it's just for the for the purpose of an illustration.
• 6:38
  SPEAKER_01: So you're you're in for£210,000,£215,000, you're gonna flip the property, property's gonna sell for£300,000,£320,000, or you're gonna make, for the sake of the argument, you're gonna make£70,000 clean profit.
• 6:50
  SPEAKER_01: Okay.
• 6:51
  SPEAKER_01: So you've put very little of your money down and you're gonna make£70,000.
• 6:55
  SPEAKER_01: So why don't you go to an investor and say, Look, Mr.
• 6:58
  SPEAKER_01: Investor, I've got this amazing opportunity right now where we can buy a property, we need X amount of money to buy it, and at the end it's gonna be worth X.
• 7:09
  SPEAKER_01: My plan is to flip it, and what I'm offering a partner in this particular opportunity is if they lend£50,000 for the argument's sake, uh, they'll get 10% interest, so they'll get£5,000 interest over the course of 12 months, and they'll get a share of the profit.
• 7:29
  SPEAKER_01: Now, let's say you decide to give them 15% of the profit or 10% of the profit.
• 7:35
  SPEAKER_01: This is again a blank sheet of paper.
• 7:37
  SPEAKER_01: So whatever you decide, that's what that's what happens, okay?
• 7:42
  SPEAKER_01: At that point, don't say, Do you have the money?
• 7:45
  SPEAKER_01: What you need to start saying is, Do you know anybody that's looking for opportunities like this?
• 7:51
  SPEAKER_01: And then shut up, stop speaking at that point.
• 7:55
  SPEAKER_01: Let them think about it and let them say, Well, actually, do you know what that's an opportunity that I'd be interested in doing?
• 8:01
  SPEAKER_01: Because there's a thing called FOMO, fear of missing out, right?
• 8:05
  SPEAKER_01: A lot of people, if they've got the capital, they'll be like, Well, that sounds like something I'd do, so tell me more about it.
• 8:11
  SPEAKER_01: And then therefore, they've come to you and said, Well, I'm interested in that.
• 8:15
  SPEAKER_01: It's a much easier conversion at that point, right?
• 8:18
  SPEAKER_01: And it's a much easier conversation as well.
• 8:20
  SPEAKER_01: Okay, so don't ask for money, present opportunities.
• 8:23
  SPEAKER_01: Now, obviously, these were all made-up numbers, uh, hypothetical, for the purpose of just demonstrating how I would present myself to an investor.
• 8:30
  SPEAKER_01: And I've done this many times.
• 8:32
  SPEAKER_01: I needed, I needed, um, I needed to find£100,000 for a property I bought at auction.
• 8:37
  SPEAKER_01: So I bought a property at auction, I paid the auction fees and I I paid what I had to pay.
• 8:42
  SPEAKER_01: I then had 28 days to find 100 grand.
• 8:47
  SPEAKER_01: And I did the exact same.
• 8:49
  SPEAKER_01: I reached out to a number of my um clients who I know had the ability to find that£100,000, and I simply presented the opportunity.
• 8:58
  SPEAKER_01: I said, Look, I've got this opportunity right now.
• 9:00
  SPEAKER_01: Have you got five minutes just to talk about it?
• 9:03
  SPEAKER_01: I jumped on a call with them, whether it be a Zoom call or a phone call, and I just said, Look, we bought this property at auction, we need to raise£100,000.
• 9:10
  SPEAKER_01: The property's£160,000, we're going to spend approximately£75,000 for an old refer, and the end value should be about£350,000.
• 9:17
  SPEAKER_01: So£160,000 plus£70, that's£230.
• 9:20
  SPEAKER_01: End value£350.
• 9:22
  SPEAKER_01: On this particular example, I can afford to give 20% interest.
• 9:25
  SPEAKER_01: So, you know, if you know somebody's got£100,000, they want to make£20,000 in interest.
• 9:30
  SPEAKER_01: Um, would you mind, you know, I would you mind sort of pointing me in their direction?
• 9:36
  SPEAKER_01: Same thing.
• 9:36
  SPEAKER_01: I didn't ask for the money, I asked if they knew anybody they'd be interested.
• 9:40
  SPEAKER_01: And the first person I spoke to about this deal, um, he said, Well, look, I've got£100,000 and I'd I'd more than happily do it if I could make£20,000 in interest.
• 9:49
  SPEAKER_01: Deal done.
• 9:50
  SPEAKER_01: Money in the bank within 36, 48 hours.
• 9:53
  SPEAKER_01: You know, it's just insane.
• 9:55
  SPEAKER_01: When you know how to present to investors, when you know how to position deals, there's plenty of money out there.
• 10:02
  SPEAKER_01: And I want you to remember, um doing joint ventures and loan agreements, things like that, you know, get it done legally, speak to a solicitor and get contractors drafted, contract drafted legally.
• 10:14
  SPEAKER_01: And you know, I've always used the same solicitor for doing this sort of stuff.
• 10:19
  SPEAKER_01: Um, but I only use them if I'm, you know, I have had examples where I've borrowed£25,000.
• 10:26
  SPEAKER_01: You know, that's just done in-house.
• 10:28
  SPEAKER_01: But anything over£25,000, I would definitely get a solicitor to do.
• 10:32
  SPEAKER_01: I'm a lot more experienced than some people listening to this, so you know, I can make that decision about my business.
• 10:38
  SPEAKER_01: But for you, if it's your first joint venture, I pretend I actually would recommend you go to a solicitor, even if it's for£10,000, because you know, it's going to cost you legal fees, okay?
• 10:49
  SPEAKER_01: £7.50 plus VAT or whatever your solicitor charges you.
• 10:52
  SPEAKER_01: But it's peace of mind, okay?
• 10:54
  SPEAKER_01: And you want to make sure you're doing it properly.
• 10:56
  SPEAKER_01: Um, listen, joint ventures are only as good as the relationship you've got, and it's only as good as the paperwork that's set up around it.
• 11:04
  SPEAKER_01: At the end of the day, if a joint venture does go wrong, there needs to be caveats in the agreement that lay out what happens if.
• 11:12
  SPEAKER_01: So, for instance, if a deal goes wrong and you can't afford to pay the investor back at the right time, what happens in that situation?
• 11:19
  SPEAKER_01: It needs to be documented, it needs to be written down, and it needs to be agreed upon by both parties before entering into a joint venture agreement.
• 11:26
  SPEAKER_01: Ideally backed up by solicitors who represent both parties.
• 11:30
  SPEAKER_01: Okay.
• 11:31
  SPEAKER_01: So joint ventures are a great way to grow, they're a great way to leverage money, and they're a great way to you know build relationships for future partnerships.
• 11:40
  SPEAKER_01: So, yeah, crack on, do some joint ventures, remember get legal representation, and you'll be good.
• 11:45
  SPEAKER_01: See you tomorrow.
• 11:49
  SPEAKER_00: That's it for today, folks.
• 11:51
  SPEAKER_00: Thanks for tuning in to the Property Entrepreneurs podcast.
• 11:53
  SPEAKER_00: Hope you got massive value from today's show.
• 11:55
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• 12:02
  SPEAKER_00: tomorrow morning.
• 12:03
  SPEAKER_00: Also, jump over onto Instagram and Facebook, drop us a comment, let us know what you thought of today's show, head over to alistain.com for the main website to get free resources, free training, and keep up to date with what's going on in our world.
• 12:16
  SPEAKER_00: Remember, property is all about building systems.
• 12:18
  SPEAKER_00: Create the system, create a system.
• 12:23
  SPEAKER_00: Now go out and make the business.